Today it is the Age of Entrepreneurship. People are tired and bored of their nine-to-five jobs and want to do something for themselves and follow their passion. Hence, there is a sudden rise in startups and new businesses.
Earlier, starting a business felt like a horror for most people. During those times, banks were also reluctant to provide loans to everyone. However, today the times have changed.
Today people have become courageous, and with the surge of the internet, their confidence has increased to have their startups.
The essential part of every startup is capital and funding. Business Loans are a great way to break that barrier. In this blog, you will learn in detail about business loans.
What is a Business Loan?
A business Loan refers to money lent to an individual for business purposes. A business loan can be availed to start, run, or manage a business. It is also given to acquire an established business.
Banks are the financial institutions that disburse business loans to individuals. However, there are other financial bodies, like Fintech Companies, NBFCs, etc., who lend business loans to small business owners who don’t have access to banks.
Who is eligible to get a Business Loan?
The individuals who are eligible to avail of business loans from financial bodies are:
- Self-employed Entrepreneurs.
- Women Entrepreneurs.
- Proprietors
- Partnership firms
- Private companies are dealing with manufacturing businesses.
- Traders
- Individuals involved in services, etc.
What are the eligibility criteria for Business Loan?
The general loan eligibility criteria to get your business loan approved are as follows:
- Generally, the loan applicant must be 21 years or older. However, the age factor varied between different financial institutions.
- Business loans are not disbursed for applicants above 65 years at the loan’s maturity.
- The loan applicant should have a profitable business for at least two years.
- The loan applicant’s business must have existed for at least two years.
- The loan applicant must have five years of experience in running businesses.
The above are the general criteria for business loan disbursement in India. However, the criteria may vary across different lending institutions.
What are the factors that can help you with your Business loan approval?
Just desiring a business loan cannot get you one. There are many factors that you must consider to get smooth approval of your loan. Some of the most important factors are mentioned here:
- Higher Credit Score
- A credit score is one of the most crucial factors when applying for a business loan.
- The personal credit score of entrepreneurs, along with their record of payments history combined from multiple institutions, can affect the business’s eligibility for a loan.
- The credit score is the measure of your financial discipline as an entrepreneur.
- If you maintain a healthy credit score, it ensures that you will pay your monthly installments regularly.
- Any financial institution will provide you with a business loan if you maintain a healthy credit score.
- Abundant Cash flow in your Business
- Providing business loans to entrepreneurs is a risky affair for lenders or lending institutions.
- Hence, they must ensure a good cash flow in your business so they can be assured of lending you a good business loan.
- The lenders will ensure a good cash flow in your business by checking the following:
- Cashflow in your past projects.
- Tax returns.
- Present Debts.
- All the above will help them determine whether you will successfully pay the monthly installments.
- Existing Business Insurance
- Business Insurance is a must when opting for a business loan.
- When your business is insured, the lenders have an air of confidence to lend you a business loan.
- Lenders and lending institutions also aim to provide risk-free loans.
- Insurance also ensures that the business loan can be paid off quickly during unforeseen circumstances like the recent Covid-19 Pandemic when so many businesses had to shut down because of lockdown.
- Relevant Documents
- Documentation is crucial in any business loan disbursement process.
- Hence, lenders and lending institutions are stringent with the documents.
- The following are the documents that you must produce in front of the lenders to get your business loan approval,
- Applicant’s Identity proof.
- Applicant’s PAN card
- Applicant’s address proof
- Applicant’s Proof of business
- Applicant’s Business and personal bank statements (last six months)
- Applicant’s Business and personal tax return records
- Applicant business’s financial statements
- Applicant Business’s legal documents such as commercial lease and franchise agreement.
- All the above documents are mandatory for business loan disbursement.
- Apart from the above, some lenders can ask for additional documents according to their requirements.
- Budget and Financial Planning
- Your budgeting and financial planning skills related to your existing business or your startup are crucial for lenders to judge your money habits.
- No one wants to lend money to a financially indisciplined person.
- Hence, it is ideal t your budgeting and financial planning for your business to impress lenders and lending institutions.
- It will also give confidence to your lenders to disburse your loan faster.
Business loans are very crucial to any business. From small to big businesses, the capital required is always higher than what you can afford. Also, taking a loan for your business keeps you in a loop of financial discipline. It will also make your financial habits and decisions better.
When you want to take a business loan for your start-up, please follow all the above guidelines to get faster approval.
